AWS on track to spend $75 billion in 2024 to meet increased demand for genAI
Amazon Web Services (AWS) is on track to spend a staggering $75 billion on capital expenditure in 2024 to fuel its rapidly growing cloud computing infrastructure. This leap in spending—up significantly from last year's $48.4 billion—comes as enterprises increasingly move to the cloud and demand for generative AI technology skyrockets.
Amazon anticipates even higher spending levels in 2025, driven by escalating customer interest in AI and cloud solutions. "We expect to spend about $75 billion in 2024. I suspect we'll spend more on that in 2025. And the majority of it is for AWS and, specifically, the increased bumps here are really driven by generative AI," Amazon CEO Andy Jassy said in an earnings call with investors.
This aggressive move comes amidst a backdrop of strong financial performance for AWS. For calendar Q3 2024, AWS reported net sales of $27.45 billion, marking a 19% year-on-year increase, with operating profit rising nearly 50% to $10.45 billion. Jassy acknowledged the momentum noting, "Companies are focused on new efforts again, spending energy on modernizing their infrastructure from on-premises to the cloud."
The CEO referenced recent customer deals with the ANZ Banking Group, Booking.com, Capital One, Fast Retailing, Itau Unibanco, National Australia Bank, Sony, T-Mobile, and Toyota to emphasize his point.
Ironically, when the UK's Competition and Markets Authority probed AWS earlier on the state of the local cloud market, the company didn’t have the same optimistic outlook. Rather the company argued that it faces “stiff competition” from customers repatriating workloads back on-premises.
The case for increased investment in AI
To ease concerns about the returns on the massive investment AWS is putting, Jassy explained that while upfront costs for AI hardware are higher than traditional CPUs, the extended lifespan of data centers (20-30 years) ensures a healthy return on invested capital.
This strategy aligns with the broader trend in the hyperscaler market, where Microsoft and Google are also making similar investments.
However, analyst Steve Brazier of Informa throws a word of caution. He pointed out the existing gap between capex spending and immediate returns, noting that hyperscalers have poured roughly $200 billion into capital investments since early 2023, but only $20 billion has come back in direct revenue from AI services.
"With around $200 billion in capex, only about $20 billion of revenue is actually coming from consumers and businesses in terms of AI services, things like Copilot licenses and ChatGPT licenses, so a very poor return in true results in terms of end users. And the whole bet [whether] the AI explosion continues or not will depend on whether they can get that $20 billion up as quickly as they hope," he said.
